Wall Street on Apple: How Deep Is Your Love?
Late last month, I mentioned that “love was in the air” between Apple and Wall Street analysts. The theme kept resurfacing in the past couple of weeks. In fact, I identified sell-side support as a key driver of stock price momentum yet again only a few days ago.
Wall Street still believes
Over the past couple of days, something unique happened to Apple shares. Big Tech hit a soft patch between Monday and Tuesday, with FAAMG ex-Apple down nearly 3% against a flat S&P 500. Yet, Apple managed to beat both the benchmark and its peers, as the chart below depicts.
What were the big news of the week leading to Apple’s outperformance? You probably guessed it: more sell-side appreciation.
Two positive research notes were published on July 13. Wedbush analyst Dan Ives, an active Wall Street name covering the stock, bumped his price target to a peer-high $450 per share – suggesting a 16% upside opportunity.
Mr. Ives’ optimism towards Apple was shared by Morgan Stanley analyst Katy Huberty, but for different reasons. According to her, the company’s nascent trade-in program could be a sustainable competitive advantage. She adds:
Thinking like a “sell sider”
I don’t want to come across as cynical, but I find these price target bumps highly predictable. To understand why, one must think like a sell-side researcher – my old job, in fact.
I explained recently that analysts have been having a hard time catching up with Apple’s meteoric share price rise. As a result, price targets were starting to look very stale. Wall Street rated Apple something between a “Buy” and a “Strong Buy” in the aggregate, but average price target on the stock was 10% below where shares traded a couple of days ago. See graphs below.
With Apple’s earnings day fast approaching, analysts need to make a decision: (1) bump up their price targets and double down on their bullishness, or (2) throw in the towel and downgrade the stock due to high valuations. Staying “on the fence” (i.e. calling a stock a buy while maintaining below-market target prices) just won’t cut it.
It does not surprise me at all that, so far, analysts have chosen the first approach. With so many of them yet to revisit their calls, I expect to see more bullish notes being published between now and earnings day, on July 30.
If Apple ends up delivering solid fiscal third quarter results, the remaining experts that choose not to stick their necks out will probably need to give in and jump on the bullish bandwagon – which could support Apple’s stock even further in the short term.
Explore more data and graphs
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)